WRAPUP 1-A LatAm airline colossus is born with TAM-LAN deal

Fri Aug 13, 2010 6:34pm EDT

 * TAM-LAN merger would create LatAm's biggest airline
 * All-stock transaction, no financial terms given
 * Will serve booming regional airline passenger traffic
 By Guillermo Parra-Bernal and Brad Haynes
 SAO PAULO/SANTIAGO, Aug 13 (Reuters) - Brazil's TAM and
Chile's LAN announced a proposed merger on Friday that would
create Latin America's largest airline and compete for the
region's booming demand for passengers and cargo.
 The new entity, to be named LATAM Airlines Group, would be
created via an all-stock transaction, the companies said in a
 If the transaction is approved by shareholders and
regulators, the combined airline would rank as the world's 11th
biggest in terms of passenger traffic, serving 46 million
passengers annually with 115 destinations in 23 countries.
 LAN's Chief Executive Enrique Cueto will be the CEO of
Latam Airlines, while TAM's deputy chairman Mauricio Rolim will
be the chairman of the combined company.
 As part of the agreement, TAM shareholders will receive 0.9
shares of LAN for every TAM share in the form of Brazilian
depositary receipts. TAM will then delist its shares in Sao
Paulo and in New York.
 LATAM will retain its listings on the Santiago stock
exchange and the New York Stock Exchange and would seek to list
on Sao Paulo's Bovespa.
 The new company will be "a global player for sure," said
Caio Pereira Dias, an analyst with Santander Investimento in
Sao Paulo. He called the proposed transaction a "tremendous
deal" for LAN, and "extremely good" for TAM.
 The proposal comes at a time when millions of people in
Brazil, Chile and elsewhere around the region are joining the
middle class and starting to fly thanks to robust economic
growth that has outperformed most of the developed world in
recent years.
 Meanwhile, competition for those passengers has
intensified. Colombia's Avianca created another regional giant
last year with El Salvador's Taca, while TAM (TAM.N) has faced
challenges from discount carriers within Brazil as well as
worsening bottlenecks in the country's civil aviation
infrastructure as demand grows.
 The agreement also coincides with a wave of consolidation
in the airline industry globally.
 Financial details of the transaction were not immediately
disclosed, though LAN (LFL.N) said the merger would have
synergies of about $400 million a year. The companies said that
the two carriers, which will continue to fly under their own
brands, had combined revenues of $8.5 billion last year and
more than 40,000 employees.
Graphic on the two airlines: link.reuters.com/gug94n
  FACTBOX Top global airlines by passengers carried
 LAN said the merger could take between six and nine months
to complete.
 The two airlines would appear to compliment each other. LAN
has a strong presence in other South American countries
including Peru and Argentina, while TAM's routes to Europe are
highly profitable.
 Both carriers use planes from Europe's Airbus for
short-haul routes, and a combination of Airbus and Boeing
aircraft for long-haul routes -- a mix that should give the new
entity considerable leverage when negotiating future aircraftpurchases.
 Shares in both companies soared as news of the transaction
broke. TAM shares TAMM4.SA rose 27.6 percent to close at
36.20 reais in Sao Paulo. LAN LAN.SN rose 7.7 percent to
13,900 Chilean pesos in Santiago.
 The companies said that Brazilian firm BTG Pactual is
acting as the financial advisor for the deal for TAM. JP Morgan
Securities Inc. is the financial adviser to LAN.
 Other examples of recent consolidation in the global
airline industry include the merger approved last month between
Spain's Iberia IBLA.MC and British Airways BAY.L, plus a
planned fusion of UAL Corp UAUA.O and Continental Airlines
Inc. CAL.N.
  (Additional reporting by Alonso Soto in Santiago, Writing by
Brian Winter, Editing by Todd Benson, Leslie Gevirtz)

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